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Credit Counseling Agencies & Debt Management Plans - BBB Tips

Author: Better Business Bureau

BBB Tips on Choosing a Credit Counseling Agency If you are in debt and finding it difficult to pay your bills, credit counseling can be a financial lifesaver. The right counselor can advise you on how to use credit wisely; help you establish a workable budget, keep track of your bills and manage your money; and, if appropriate for your situation, arrange a repayment plan with your creditors. In short, a trained and certified specialist can place you on the track to financial security. How Credit Counseling Works Once you have selected a reputable credit counseling agency, you will be asked to provide information about your income, expenses and debts. The counselor should analyze the information, discuss your situation with you and make recommendations to help you address your financial problems. These suggestions may include participation in an educational class, enrolling in a debt-management/repayment plan, or referral to another organization, such as a relationship counseling or state employment agency, for assistance to address any non-financial situations you may be experiencing.

Choosing an Agency If you decide to work with a credit counseling agency, spend some time researching your options and take care to select a reputable agency. Your goal should be to find a credit counseling agency that has satisfied clients, offers personalized service from trained counselors, can educate you how to make appropriate financial choices and will provide you with the tools you need to achieve financial security.

* Carefully evaluate advertisements. Just because a credit counselor has a big advertising budget does not necessarily mean it is the best! Also, you would be wise to ignore telephone calls or e-mails that arrive "out of the blue" from credit counselors offering their services. Good credit counselors often rely on past clients for referrals; they do not need to solicit business through constant television advertising, infomercials, telemarketing or spam e-mails.

* Interview several agencies. If you know someone who has used such an agency in the past, ask them for a recommendation. Or, ask friends or relatives who they would consider if they needed budgeting advice. You can also find credit counselors in the Yellow Pages, by contacting the National Foundation for Credit Counseling 800.388.2227 ( or the Association of Independent Consumer Credit Counseling Agencies 800.388.2227 ( for a list of members or by using an Internet search engine.

* Is the agency licensed and accredited? Many states require that a credit counseling organization register or obtain a license before offering credit counseling, debt management plans and similar services. Do not hire an organization that has not fulfilled the requirements for your state. Also, ask if the firm is a member of the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies and double-check that information at the respective Web site. Agencies that are members of these organizations must adhere to strict standards of professionalism and accreditation and use only certified credit counselors.

* Consider the qualifications of the counselors. Ask if the counselors are certified and by whom? Try to select an agency whose counselors are certified by an outside organization. You will also want to ask how the agency's employees are paid. Steer clear of organizations that pay employees a commission; that might well influence the number or nature of services they decide you need.

* Are services personalized? A cookie-cutter approach most likely will not address your financial situation. Find out if the counselor will devise a plan tailored to fit your personal circumstances. Also, think beyond your immediate credit/debt problems and find out if the agency will offer you advice on avoiding problems in the future.

* What about privacy and security? What assurances do you have that the agency will keep information about you confidential? Does the agency have a privacy policy and are you comfortable with its terms? If not, select another agency. Security practices are also of importance. How does the credit counselor protect the security of client information?

* Gain a clear understanding of the services offered. You should seek an organization that offers a range of services. For instance, ask if the services include educational classes or counseling and on what subjects. Will you have the opportunity to discuss your financial situation with a counselor and receive assistance in developing a personalized plan? What sort of services do they provide regarding debt repayment plans?

* Check their complaint records. Contact your Better Business Bureau (, State Attorney General and local consumer protection agency to find out about specific credit counseling organizations' records. If consumers have filed complaints against the firm or if the counselor has not been responsive to complaints; that could indicate problems.

* Get verbal promises in writing. Only do business with agencies that offer formal written agreements or contracts. Carefully read through the terms of agreement or contract. It should describe in straight-forward fashion the services to be performed; the payment terms for these services, including total cost; how long it will take to achieve results; any guarantees offered; and, the counselor's name, business name, address and contact information.

* Fees. Get a clear presentation of the fees you will be charged. If there are fees (set-up fee, monthly service charges), the agency should explain what they are based upon. In general, you should not expect to pay more than $75 in set-up fees or make a monthly payment that exceeds $40. This monthly payment fee is subject to state law, and the agency representative should be able to tell you the specific regulations for your state of residence. The agency should also be willing to advise you how your funds will be protected. Finally, consider the total of the various fees; when added to your monthly debt, will the cost defeat your efforts to pay down your debt? If you are financially destitute, ask if the organization waives or reduces fees for people in your circumstance. If not, look elsewhere.

* Ask how the agency is funded. Most credit counseling agencies are partially funded through voluntary contributions from creditors who participate in Debt Management Plans. (Creditors have a business interest in receiving their payments, so most of them are willing to help support participating credit counseling agencies.) Go elsewhere for assistance if the credit counseling agency refuses to discuss its funding sources. If the agency claims to be tax-exempt or not-for-profit, double-check with your state charity official (for contact information, visit the Web site of the National Association of State Charity Officials at Some credit counseling organizations using questionable practices have sought tax-exempt status in order to circumvent consumer protection laws. Finally, bear in mind that regardless of how the agency is funded, your creditors should always be credited with one hundred percent (100%) of the amount you pay through a credit counseling agency.

* Are budget and credit education opportunities offered? Reputable organizations are willing to help you manage your finances through counseling and education. Ask if the agency offers workshops or educational materials. Are they available for free? Are they accessible online or can the materials be mailed to you? If the agency insists that a debt management plan is the only option for clients, look elsewhere. Debt Management Plans A debt repayment or debt management plan (DMP) is a creditor-approved arrangement that allows you to repay your unsecured debts at reduced interest rates.

The credit counselor will negotiate with creditors to reduce interest rates, eliminate late fees or other penalties. In turn, you will be expected to make a regular monthly payment to the credit counseling agency. Instead of writing several checks to various creditors each month, you make one payment (usually electronically) to the counseling agency. Your payments are then used to pay your creditors according to a payment schedule the counselor has developed in consultation with you. Some credit counseling agencies charge a modest monthly fee for managing the plan; others charge a more significant fee. Agencies that are members of the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies (AICCA) are bound by standards that limit the charges for their services. Some states also have strict limitations. Before enrolling, ask what the cost will be. If the fee is too high or you are asked for a large "voluntary" contribution, then you may want to consider selecting another agency. A successful DMP generally takes 30 to 60 months to complete. Recognize that you will be expected to agree to not apply for any additional credit and not incur any additional debt while you are participating in the repayment plan. If you are enrolled in a DMP, the agency should provide regular statements to you showing how your funds were distributed. If you discover that your creditors are not being paid, contact the counseling firm immediately. DMPs usually cover only your unsecured debts. If you have secured debt - such as a car loan or a mortgage - you must continue to make payments to these creditors directly or you could lose your property. Ask which debts will be included and excluded from the DMP.

Finally, while it is best to be optimistic regarding the success of your DMP, you should consider what happens if you cannot maintain the agreed-upon plan. For example, if you are unable to make payments to your DMP, you may lose associated benefits, such as lower interest rates and fee waivers. Red Flags That Signal Trouble The following can indicate that a particular agency is not abiding by good business practices. * Demands that you provide account numbers or other financial details before it will discuss its services or fees. Reputable credit counseling agencies are happy to provide free information upfront about their services. * Boasts that it can "lower your monthly payments by 30 to 50%." This bold statement is rarely, if ever, true. * Promises that it can "get you out of debt easily." This is an irresponsible advertising claim. Getting out of debt is rarely an "easy" task. Avoid counselors who promise a quick and easy way to fix your credit problems. * We won't need much time. Steer clear of any agency that claims it can evaluate your situation in just minutes, or that offers to do so quickly over the phone. If services are provided over the phone, make sure the counselor is evaluating your personal situation, and not rushing to provide generic advice that could apply to any consumer. Experienced counselors may want to spend close to an hour with you reviewing your financial situation before recommending how to address your financial condition, and may offer follow-up sessions. * Claims that it can remove negative information, such as bankruptcy, from your credit report. It is illegal to make such a representation if the negative information reflects your true credit history. Accurate information cannot be removed from a person's credit report. * Issues a blanket recommendation for a dept management plan. DMPs are not for everyone. Do not agree to establish one unless and until you have reviewed your personal situation with a certified credit counselor who recommends such a plan and then customizes the plan to best manage your debt. * Requires "voluntary" contributions. Required "voluntary" contributions are not voluntary! * Is reluctant to provide the organization's business name and address. This is a clear sign of impending fraud. A toll-free telephone number or e-mail address is not sufficient. Scam artists typically avoid providing their physical location to thwart law enforcement detection. *Insists that you make an immediate decision. Reputable credit counselors will permit you time to evaluate their offer, shop around and make a determination that best suits your financial situation.

As you are doing your research, however, remember that timing is critical when addressing your financial situation. Delays can cause your circumstances to worsen. About ClearPoint Financial Solutions, Inc. ClearPoint Financial Solutions, Inc. (TM) (formerly Consumer Credit Counseling Services of America, Inc.) is a national non-profit organization dedicated to helping consumers achieve financial wellness through counseling and education. Established in 1980, ClearPoint has helped over one million individuals achieve financial security. ClearPoint is the only non-profit System-wide member of the Better Business Bureau (BBB), and one of the largest members of the National Foundation for Credit Counseling (NFCC). Headquartered in Richmond, Virginia, ClearPoint manages branches across the country. Personalized and confidential consultations are available in person, by phone or online. Visit ClearPoint Financial Solutions at or call 877-877-1995. Credit Counselors, CDC Consumer Debt Counseling, and Solutions, Inc. are all trade names of ClearPoint. About BBBTips(TM) BBBTips(TM) is a trademark of the Council of Better Business Bureaus, Inc. (CBBB) that is used to identify consumer information articles and brochures that have been developed in partnership with the Better Business Bureau Consumer Education Foundation, Inc. BBBTips(TM) are made possible, in part, through the generous financial and technical support that is provided by corporate sponsors who are members of the CBBB and of the local BBB where the corporate sponsor is headquartered.

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